Silicon Valley Bank Failure and What it Means

John Zollinger, Home Bank

Thanks to member George Messina for catering this week’s networking event at Rooftop on Basin.

Guest speaker John Zollinger, Executive Vice President and Chief Banking Officer, at Home Bank explained the recent bank failure at Silicon Valley Bank (SVB). He went on to say that most bank failures are because of bad loans. In this case, and starting with the pandemic, the Feds starting flooding the market with cash and SVB had a lot of cash on their balance sheet and tried to keep their doors open and operate. With their money only earning .1% it wasn’t paying the bills and their only opportunity was to buy treasury securities. This was a failed bank that was invested in the government with zero credit risk. It’s important to note that their assets and liabilities didn’t match. Zollinger commented that as a business owner, your assets and liabilities have to match. In other words if you have a long life asset, such as real estate, then you want a long term loan. If it is a short life asset, then it should be matched with a short term liability. Adding to the problem was the rapid rise in rates, upwards of four percent, in a short period of time causing the bond value to go down as interest rates increase. As an example, Bonds that were worth $100 are now worth $60 and SVB could only borrow against the bonds on a margin of the bond’s value. If they could’ve waited till the bond matures than they would get the full $100 value. Timing is the difference in this instance. Their balance sheet securities portfolio and their loan portfolio was 113% of their liabilities. leaving them with a 13% negative capital. Zollinger added that SVB was sold twenty five billion dollars in securities and would take a two billion dollar loss on the securities. This news triggered everyone to exit the bank with hedge fund managers encouraging investors to get out. Zollinger reported that 42 billion dollars left the bank that day and another 40 billion was scheduled to go a day or so later and then the feds stepped in. Most of their clients were venture capital backed companies.
John commented that confidence in the system is important and the FDIC insurance provides some level of confidence insuring up to $250, 000 per person and at each financial institution.
Zollinger bio

Membership

If you have a prospect, please have them connect with Jacquie Bonano, membership chair at membership@gnoea.com.

Thank You & Announcements

Angela Verdin, Complete Logistical Services, introduced guest James Brown, new sales manager with Complete Logistical Services.

Jesse Hoppes, Leaaf Environmental introduced guest Keith Schneider, of Benson Capital Partners runs day to day operations.

John Zollinger, Home Bank thanked Jacquie Bonano, Lola Lass for their donation to a charity he supports.

Jacquie Bonano, JB Communications, thanked Catherine Shreves for a business referral. She added that Bayou Phoenix meeting notice announcing the masterplan will be emailed to members. Meeting is scheduled for Monday, March 27th.

Bobby Ramsey, Ramsey Jewelers, thanked Marcus Azarello, Franklynn Pest Control, for his help with a pest problem.

Upcoming Meeting Schedule

  • March 28th – Tax Talk with Philip Rebowe, CPA P&N
  • April 11th – Professor Peter Ricchiuti, Tulane AB Freeman School of Business
  • April 18th – St. Bernard Economic Development Foundation, Meaghan McCormack CEO – Board Meeting follows
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  • May 23rd – Louisiana State Treasurer John Schroder
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  • June 6th – TBA – Board meeting to follow
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  • June 20th – No Meeting
  • June 27th – Update on Jefferson Parish – Parish President Cynthia Lee Sheng – Board meeting follows
  • July 4th – Happy 4th of July
  • July 11th – Jim Patterson, LABI

Check website for updates and bulletins that include upcoming events. Meeting events are on the calendar.